The bull market is over, and reality is hitting hard. Bitcoin fell to an 18-month low of $17,710 before bouncing back to $21,000 at the time of writing, according to CoinMarketCap. However, the slight climb might be of little solace to investors who’ve seen their wealth evaporate in the past few weeks.
Traders and investors are scratching their heads over dropping prices, anxiously waiting for the bottom. While it is practically impossible to predict the end of a bear market, previous market cycles and current technicals might provide insights into possible outcomes.
Typically at the onset of a bear market, companies start taking control over their overheads, resulting in layoffs. During the 2018 bear market kick-off, news headlines were swamped with layoff announcements from crypto firms like Huobi and Coinfloor.
Following a similar trail this time, a host of web3 firms have announced layoffs and hiring freezes, including Coinbase and Crypto.com.
A good sign of market recovery is when firms begin expansion plans and start rehiring. However, current market dynamics suggest we might be just at the beginning of a bear phase or at least a period of consolidation. The only silver lining is that funds haven’t completely dried up into Web3 startups, unlike the previous cycle.
Technical analysis is often helpful in predicting future price movements. Let’s look at some indicators that have been fairly precise in the past.
200-Week Moving Average Heatmap – Bitcoin
The 200 Week Moving Average (WMA) has been on-target several times in predicting the end of bear markets in Bitcoin’s history. As seen on the graph, whenever the price touches the 200 WMA, it starts climbing up.
Dots in the heatmap show the percentage of the rise and fall in prices, with the green dots indicating a very high increase in price and the red ones indicating a steep fall. The percentage of falls has been a lot slower this time compared to 2018.
Bitcoin’s price seems to be bottom-up around the 200 WMA. It has spent only a scarce amount of time under the line in the last decade. Going by the 200 WMA, the bottom isn’t far away. However, it will be hard to tell if we’ll see green dots anytime soon.
Relative Strength Index (RSI)
RSI is an indicator that signals overbought and oversold zones and has been quite accurate in the past.
Bitcoin’s RSI on a monthly chart hit an all-time low of 42 in the last few days. Historically, prices have sprung up or consolidated around an RSI of 45. In 2018, RSI made a low of 43 and remained just above that for a few months before surging again.
Currently, the prices are in the oversold territory after falling from an overbought zone of 91. Even though the RSI can dip further to mark historic lows, it might still be a good time to accumulate.
Market value to realized value (MVRV)
The MVRV Z-score is an indicator that shows when “Bitcoin is extremely over or undervalued relative to its ‘fair value.'” It is calculated by deducting the realized value (the price of a bitcoin when it was last transferred) from the market value and dividing the outcome by the standard deviation of the two extremes.
Z-score effectively identifies periods when market value moves above realized value.
The green zone towards the bottom of the chart indicates the area where the price enters the lowest points until it moves above the green zone to start an upward rally.
As seen on the chart, the Z-score line currently sits somewhere in the middle of the green zone, suggesting there could be more downside towards the bottom of the zone, followed by an extended period of consolidation.
The rainbow chart uses a “logarithmic growth curve to forecast the potential future price direction of Bitcoin.” The colored bands on the rainbow chart make an attempt to suggest market sentiment.
Blue-colored bands would be buying areas, while red bands are a call for sale. Bitcoin’s price has just entered the blue bands, highlighting the bottom. However, it might dip further, as seen in the previous cycle.
Market Sentiment – Greed vs Fear
The Fear & Greed Index helps investors gauge market sentiments. It is directly proportional to the price of Bitcoin. As the price rises, sentiments improve, and vice-versa. Also, the more the fear, the higher probability of buying Bitcoin for cheap.
Currently, the index shows extreme fear. Apart from the steep fall in crypto prices, a string of negative news and mass liquidations involving crypto firms like Celsius and Terra have hit the sentiments very hard.
However, the graph shows people aren’t as fearful as they were in the 2018 collapse suggesting the adoption of crypto and Web3 has improved massively over the years, and there’s more faith in the whole system now.
There are also macroeconomic factors amid rising inflation in the United States that has forced the Fed to hike interest rates. Consequently, recession fears have emerged. Bitcoin has never been through such a high inflationary environment, so we might see things get worse if inflation persists for a prolonged period.
Even though technical indicators serve a good purpose and have been somewhat precise in the past, there’s no guarantee they will hold true this time or in the future. Therefore, investors must apply their discretion and not only rely on chart patterns before making any investment decision.